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Fraud*According to the Collins English Dictionary 10th Edition fraud can be defined as: "deceit, trickery, sharp practice, or breach of confidence, perpetrated for profit or to gain some unfair or dishonest advantage".[1] In the broadest sense, a fraud is an intentional deception made for personal gain or to damage another individual; the related adjective is fraudulent. The specific legal definition varies by legal jurisdiction. Fraud is a crime, and also a civil law violation. Defrauding people or entities of money or valuables is a common purpose of fraud, but there have also been fraudulent "discoveries", e.g. in science, to gain prestige rather than immediate monetary gain*As defined in Wikipedia

Thursday, November 1, 2012

Self-styled "serial whistle-blower," William K. Black, explains why few whistle-blowers have emerged from the recent financial meltdown where the banks engaged in numerous acts of fraud. He says the reasons for fewer whistle-blowers are:

--the lack of media coverage of whistle blowers and their importance;
--little or no support for whistle-blowers by the Department of Justice;
--only one whistle-blower has emerged as a credible witness, i. e., Edward J. O'Donnell, and he is not well known;
--accounting control fraud has become de-listed as a criminal offense;
--banks do not make criminal referrals against their executives;
--the FBI have to wait for criminal referrals in order to act;
--the government has not supported or "praised" the actions of past whistle-blowers;
--O'Donnell's courageous actions have been ignored by the DOJ press.

This blog has mentioned some lesser whistle-blowers (see here, here and here) who have come forward in this financial crisis but it would have been enormously helpful, for example, if Goldman's frauds had been revealed in such a way that Goldman would have to face criminal charges and not just be given small slaps on the wrist and a fine. Oh, for such a whistle-blower!

One more reason that Goldman does not create whistle-blowers is that Goldman carefully vets its employees and grooms them for loyalty so that they become embedded in the Goldman Culture itself.

Financial CEOs led the unholy war
against adoption of the whistle-blower provisions of the Dodd-Frank
Act. Once the Act became law their principal goal became perverting the
SEC rules implementing the provision to deny any financial reward to
whistle-blowers unless they alert the firm before they alert the SEC to
the senior officers’ fraud. That prior warning would allow fraudulent
senior officers to coerce the whistle-blower to try to prevent him from
alerting the SEC, allow the officers to cover up the evidence of the
fraud, and alert the officers so that they would not make any admissions
that might be overheard by the whistle-blower or through electronic
surveillance. Both Republican SEC Commissioners voted against the rule
because it rejected the industry’s demand for a rule requiring the
whistle-blower to first alert the senior officers that he had discovered
their frauds. That effort to pervert the Dodd-Frank whistle-blower
provision into a rule that would aid elite frauds will succeed if the
Governor Romney wins the election.

The fact that the business community
fought ferociously against doing anything to encourage whistle-blowers
is an example of what we call “revealed preferences” in economics.
Honest CEOs should encourage whistle-blowers. CEOs often say that they
encourage whistle-blowers. Their SEC filings reveal their true
beliefs.

We have far too few whistle-blowers and
because of the worst epidemic of accounting control fraud in history and
the death of criminal referrals by the banking regulatory agencies our
need for whistle-blowers has never been greater. Indeed, our federal
prosecutors are the people who most desperately need to encourage
whistle-blowers to come forward who worked at the financial control
frauds.

Given that desperate need how would a
rational administration respond? The President and the Attorney General
would hold a press conference with a group of whistle-blowers. He
would praise their performance, give a few specifics of how valuable the
information they provided was to the nation, urge the tens of thousands
of Americans who have information about other frauds to come forward,
provide a web site for future whistle-blowers to use, and help arrange a
publicity tour in which the select group of whistle-blowers appeared on
a series of major television and radio programs where their efforts
could be extolled and they could ask others to follow their lead.

The DOJ web site would extoll
whistle-blowing and give examples of how their actions helped the
nation. It would showcase video interviews with whistle-blowers that
could be picked up by You Tube.

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